Seeking at Least 8% Dividend Yield? Raymond James Suggests 2 Dividend Stocks to Buy
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We’ve been seeing a bullish market in recent months, and investors, as always, are looking to maximize their returns. The analysts at Raymond James are recommending dividend stocks, encouraging investors to capitalize on both share growth and reliable dividend income.
Discussing the market landscape, Raymond James’ CIO, Larry Adam, states: “The sun continues to shine on the U.S. economy. Some of the traditional metrics that we follow (e.g., ISM manufacturing, the Fed’s aggressive tightening cycle, and leading indicators) suggest that the economy should have succumbed to a recession by now. However, growth has proven more resilient than expected. Just like the GPS ‘recalculates’ when a road trip takes an unexpected detour, our growth forecasts have had to ‘recalculate’ as the economy has proven more resilient than expected. The reasons: healthy job growth, government stimulus, travel spending, fiscal support (IRA, CHIPS, Infrastructure Act) and AI investments.”
Adam’s conclusion is clear: recession is unlikely under current conditions. He summarizes, “The important point: slowing, but still positive job growth, healthy levels of business capex, and unspent fiscal stimulus should keep the economy on a path to a soft landing.”
In this environment, the dividend stocks recommended by Raymond James offer a sound opportunity, providing substantial dividend yields – some exceeding 8% – in addition to share price appreciation. Leveraging TipRanks’ data, we’ve examined two of Raymond James’ top picks in detail.
CTO Realty Growth(CTO)
The first stock we’ll look at is CTO Realty Growth, a REIT, or real estate investment trust. These companies are known for their frequent high dividend yields, a product of regulatory requirements that they return a specified portion of their profits directly to their investors; dividends are the frequent method of choice.
CTO owns and operates a portfolio of 19 high-end retail properties in some of the highest growth markets of the US. The company’s properties include primarily commercial parks and upscale shopping malls, with locations in North Carolina, Florida, Georgia, Texas, and Arizona. In addition, CTO acts as the external manager of – and maintains a ‘meaningful’ ownership interest in – another REIT, Alpine Income Property Trust.
CTO has built its investment strategy on future income potential, seeing room for growth as more important than current income generation. The company’s geographic position reflects this; the sun-belt states of Florida, Texas, and Arizona are among the highest growth regions in the US, and Georgia and North Carolina are close behind.
This focus on quality in its real estate holdings has allowed CTO to record long-term share growth. Year-to-date, the stock is up almost 20%, and over the past 12 months the shares have gained more than 35%. While these share gains lag the broader market, the stock makes up for that with its dividend.
The dividend here is impressive. CTO’s last declaration, on August 20, was for a 38-cent payment per common share. This was paid out on September 30. The annualized payment of $1.52 gives a forward yield of nearly 8% – a solid return, especially now that the pace of inflation is slowing.
The company’s dividend is supported by its financial performance. In the last reported quarter, 2Q24 CTO had an FFO, or funds from operations, of 45 cents per share. This is the metric that directly supports the dividend payment. CTO’s revenue in the quarter, at $28.85 million, was up almost 11% year-over-year and beat the forecast by $1.44 million.
Covering this stock for Raymond James analyst RJ Milligan notes both the solid dividend and the strong total return, saying of the stock, “CTO’s continued ability to source attractive investments at [+8%] yields and increased market cap/ liquidity should help eat away at the company’s meaningful multiple discount. CTO’s YTD total return is ahead of the shopping center sector and the all equity REIT index, yet the stock still trades at a meaningful FFO multiple discount to the peer group. We continue to see greater upside in the lower multiple shopping center names and/or those trading at NAV discounts given we do not expect material differentiation in fundamentals through 2025 (SSNOI/earnings growth).”
“With a significant amount of opportunistic equity raised in the quarter ($126M at an average price of $18.63), and a new attractively priced term loan ($100M at an effective 4.7% interest rate), the company can continue to play offense and look for additional accretive investments,” Milligan further said.
Milligan goes on to put an Outperform (Buy) rating on the shares, with a $22 price target that suggests a 13% gain in the next 12 months. With the dividend yield, this stock’s total return may hit 21%. (To watch Milligan’s track record, click here)
While there are only 2 recent analyst reviews of CTO shares, both are positive – making the consensus rating a Moderate Buy. The stock is trading for $19.46 and its average target price, of $22, implies a one-year gain of 13%. (See CTO stock forecast)
KKR Real Estate Finance Trust(KREF)
KKR Real Estate Finance Trust, the second stock on our list of dividend champs, is another REIT. KKR Real Estate is managed by the $600-billion global investment firm KKR, and benefits from the investment giant’s backing. The REIT maintains its own focus on originating senior loans in the commercial real estate sector, taking security in commercial real estate assets – in other words, collateralized commercial mortgages in top market regions. KREF’s asset targets also include mezzanine loans, preferred equity, and debt-oriented instruments that include similar characteristics. Like CTO above, KREF’s main objective is to generate investor returns and high dividends.
KREF’s portfolio holds approximately $6.6 billion in loans, and is made up entirely of senior loans, 99% of which have floating rates. Multifamily dwellings make up a plurality of the portfolio holdings, at 46% of the total, with office space making up 20% and industrial space making up 14%. Geographically, KREF’s portfolio is located mainly in California (19%), Texas (17%), and Massachusetts (12%). Florida and Virginia each make up 8% of the portfolio, and the company also has interests in Washington, DC, North Carolina, New York, Washington State, and Philadelphia.
KREF has just reported its Q3 earnings, dialing in a top line of $47.2 million, beating the forecast by over $9.28 million – although it was down 5.8% year-over-year. The company’s bottom line was a non-GAAP EPS of $0.37, beating the forecast by $0.03..
On the dividend, KREF declared a 25-cent common share payment on September 13, and paid it out on October 15. The dividend annualizes to $1, and gives a yield of ~8.6%.
Raymond James analyst Stephen Laws, one of the firm’s 5-star stock pros, believes that KREF has a clear path forward, and writes of the company, “We expect KREF to benefit from lower rates through increasing new investment opportunities, likely better portfolio performance as borrowers are more likely to protect assets, and potentially lower loss severities on resolutions. Our rating is based on the improving portfolio performance and our outlook for a dividend increase next year… We expect KREF to maintain the quarterly dividend of $0.25 per share in 2H24 and increase the dividend to $0.30 per share in 1Q25.”
Along with these comments, Laws gives KREF an Outperform (Buy) rating, with a $14 price target that indicates room for 20% share appreciation in the months ahead. Add in the dividend yield, and this stock could return almost 29% in the next 12 months. (To watch Laws’ track record, click here)
All 6 of the analyst reviews on record here are positive, for a unanimous Strong Buy consensus rating. The stock is currently priced at $11.68 and its $13.08 average target price implies a gain of 12% by this time next year. (See KREFstock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
